With the October 15 deadline for gift tax returns behind us, clients and other tax groups at Schneider Downs may have at times felt bombarded with questions like, “What was the date of the gift? What’s Joe Jr.’s address? Relationship to the donor? Blood type?!”
All joking aside, there can be a lot of questions to answer, even with a basic cash gift. The reason for the inquiries pertains to the period of limitations for assessing the amount of any gift tax to be imposed. Absent an exception, the assessment must be made within three years from the date Form 709 is filed. However, if a gift of property, the value of which is required to be shown on the gift tax return, is not in fact shown, the period of limitations is extended indefinitely. This means that the Internal Revenue Service (“IRS”) may assess a tax at any time, even long after the statutory three-year limitations period would otherwise have expired.
In order to be “shown,” a gift must be disclosed on the return in a manner that is “adequate to apprise the Internal Revenue Service of the nature” of the gift. A gift will be considered adequately disclosed to the IRS if the following information is provided: (1) a description of the transferred property and any consideration received by the transferor; (2) the identity of, and relationship between, the transferor and each transferee; (3) if the property is transferred in trust, the trust's tax identification number and a brief description of the terms of the trust, or a copy of the trust instrument; (4) a detailed description of the method used to determine the fair market value of property transferred, including any financial data, any restrictions on the transferred property, and a description of any discounts claimed in valuing the property; and (5) a statement describing any position taken that is contrary to any published IRS positions at the time of the transfer.
Recently, the IRS concluded that the exception to the limitation period applied because a donor’s Form 709 did not adequately disclose his transfer of interests in two partnerships. This conclusion was based on the donor’s failure to sufficiently identify the partnership and failure to sufficiently describe the method used to determine the fair market value of the gifts.
Among several deficiencies in the description of the gift, the IRS noted that the statement provided the complete nine-digit EIN for only one of the partnerships, the return used incorrect abbreviated names for both partnerships, and omitted labels such as “LP” and “LLP,” which wrongly implied that the partnerships were traditional partnerships under state law. The IRS also found that the valuation description didn’t include any financial data utilized in determining the value of the interests.
Details regarding gifts are made in contemplation of the adequate disclosure criteria. It is important to provide all the pertinent information to the IRS so as not to extend the assessment period beyond the statutory three-year limit. Contact us with questions about gift tax returns and visit our Estate Planning services page to learn about the services that Schneider Downs offers.
I.R.C. § 6501
Treas. Reg. § 301.6501(c)-1
Legal Advice Issued by Field Attorneys, 20152201F